While industry news has been dominated by medium to large CRO acquisitions, consolidation is taking place in the smaller end of the market, too. Last Wednesday morning, CRO Clinipace Worldwide announced it has acquired Swiss CRO PFC Pharma Focus.
Together, the two small CROs will have 155 employees in seven countries and aim to capture more of the small to medium-sized biopharmaceutical market, said Jeff Williams, CEO of seven-year-old Clinipace. Terms were not disclosed.
This is Morrisville, N.C.-based Clinipace’s second acquisition this year; the CRO bought Boulder, Colo.-based regulatory affairs and quality assurance consultancy Regulus Pharmaceutical Consulting in March.
Since Clinipace morphed from a software company serving the clinical research space to a full-service CRO in late 2008, the company has grown like gangbusters, said Williams, serving that sector of the market that has “The Goldilocks problem.”
“A lot of small to medium-sized sponsors don’t want to work with big CROs,” he said. “The frustration is usually around cost and visibility. But the really small CROs don’t have enough global capacity, or they’ve just stitched together a solution. That can work, but it’s not ideal. We’re trying to build a CRO that’s just the right size.”
PFC Pharma Focus, co-founded in 1992 by Johnson & Johnson alum Kurt Pfister and Kathryn Voegeli, has offices in Zurich; Munich, Germany; and Tel Aviv, Isreal. The company also has a two-year-old Indian subsidiary, PFC India, a joint venture with Chicago-based Excel Life Sciences.
Pfister will become CEO of European operations; Voegeli will be COO of European operations. Williams will remain CEO and chairman of the combined company. PFC will lose its name and become Clinipace by the end of the year.
“We liked that PFC was 19 years old, has a stellar reputation, a great management team, a nice geographic footprint, a regulatory component and no technology,” said Williams, adding, “That was a criteria. We didn’t want to have to unwire anything or reverse engineer anything out of the company.”
Clinipace calls itself a digital CRO (or dCRO), as all of its functions are automated via its eclinical platform, TEMPO. Investors apparently like the concept. Williams said Clinipace is poised to announce a $10 million to $15 million series C funding round in the next few weeks. Previous funding rounds have yielded $3.7 million, said Williams. Its main investor has been Hatteras Venture Partners. Annual revenues are just over $20 million, he said.
The plan, said Williams, is to beef up staff by 15% to 20% by the end of the year and continue making acquisitions. He said Clinipace is eyeballing CROs in Eastern Europe, Asia and the U.S.
David Windley, managing director at Jefferies & Co. who focuses on the CRO space, said the pharmaceutical outsourcing industry’s top-tier players (i.e., Quintiles, ICON, PPD, Parexel, Covance and now InVentiv) tend to win between 70% and 80% of the available work, leaving 20% to 30% of commercial trials for the small to medium players. And maybe that’s enough.
“We hear that the smaller sponsors, those with just a couple of compounds per year, are more comfortable using smaller CROs,” said Windley. “Their concern with big CROs is: ‘I’m not in the top 50 pharmaceutical companies, and my R&D budget is $50 million, not $5 billion, so I’m not going to get their A team and I might not even get their B team.’ The most important thing to them is close communication, so they go with smaller CROs.”
While the medium to large CROs are now acquiring one another or being bought by investment firms in an effort to grow and better jockey for large strategic partnership contracts with big pharma, Williams said that dynamic isn’t at work in the smaller end of the outsourcing industry.
“It’s a bloodbath out there with the large CROs competing against each other,” said Williams. “But we’re not seeing that in the small to mid-market.” The pipelines are just not as robust, so it wouldn’t behoove smaller CROs to commit to sponsors who may not end up having enough work to make such partnerships worthwhile, he said.
But Williams argued that even for big players, those partnerships might not make the most sense. “If you’re going to go in and buy 10 years of clinical trials from a company, you are by definition going to have to compress your margins, as they’ll expect a discount,” he said. “Another con is: it can be tricky for those partnerships to begin generating revenue. They sound huge, but it still comes down to projects, many of which now get delayed or canceled. Also, the sponsor can end up in a bad position, with all its eggs in one basket. What if the CRO it has a big contract with does crummy work?”
Outside its headquarters in Research Triangle Park, Clinipace currently has offices in Kansas, Brazil, Argentina and Peru. The company will maintain its headquarters in Morrisville, N.C.